CANADA FX DEBT-C$ slides as global fears dwarf Quebec, BoC news

* C$ closes at C$0.9909, vs US$, or $1.0092
    * Hurt by ECB speculation, global concerns
    * Bank of Canada holds key rate steady, remains hawkish
    * Separatist PQ wins minority gov't, referendum unlikely
    * Quebec provincial gov't bonds outperform

    By Solarina Ho
    TORONTO, Sept 5 (Reuters) - The Canadian dollar weakened
against the U.S. currency and euro on Wednesday as investors
focused on European monetary policy and global economic growth,
eclipsing the impact of a Bank of Canada rate decision and an
election in French-speaking Quebec.
    The Bank of Canada left its main policy rate unchanged but
stuck to its tightening bias, while the separatist Parti
Quebecois resumed power in the province of Quebec, snagging
enough seats in Tuesday's election to form a minority
    But currency traders were more concerned with a key European
Central Bank meeting on Thursday. A report that the ECB may buy
an unlimited amount of government bonds issued by debt-plagued
countries fueled buying in the euro against the U.S. dollar and
commodity-linked currencies, including the Canadian dollar.
    "It's the global drivers that are probably the most
important," said Camilla Sutton, chief currency strategist at
    "What the ECB decides tomorrow, as well as the global growth
outlook ... we have seen some signs that there has been some
deterioration, those are the ... broader drivers of Canada
    The Bank of Canada kept its main policy rate at 1 percent,
as expected, and reiterated its message that it may have to
raise interest rates, despite a global slowdown, due to
expectations the domestic economy will gain momentum this year
and next. 
    The Canadian dollar pared some losses immediately after the
rate decision, before sliding further to hit a session low of
C$0.9919 against the U.S. dollar, or $1.0082.
    The central bank's hawkish tone stands in contrast to that
of the U.S. Federal Reserve and other central banks, which have
been contemplating further stimulus moves. But most market
players expect the Bank of Canada to hold steady on rates until
at least 2013. 
    "There wasn't much meat on these bones ... And I think
that's exactly what the bank wants. I don't think they were
trying to send any big message here," said Doug Porter, deputy
chief economist at BMO Capital Markets.
    The Canadian dollar closed at C$0.9909 versus the U.S.
dollar, or $1.0092, weaker than Tuesday's North American finish
at C$0.9858, or $1.0144.
    The Quebec election had limited currency impact, with the
market having priced in a minority victory by the Parti
Quebecois over the governing Liberals. The minority government
status effectively ruled out the possibility of the government
holding another referendum to separate from Canada in the near
    "I think that (Parti Quebecois leader Pauline Marois) will
be a reasonable steward of the economy ... especially from a
bondholders' perspective," Ed Devlin, head of Canadian portfolio
management at bond fund giant PIMCO, said in an interview with
BNN television.
    The gap between Canadian and Quebec government bond yields
narrowed, an indication that investors felt more comfortable
with the province's debt and were demanding less of a risk
    The yield on Quebec's benchmark 30-year government bond was
121 basis points above its Canadian counterpart on Wednesday,
down from 123 basis points before the election results were
    Canadian government bonds were mixed, with the two-year bond
 up 1 Canadian cent to yield 1.112 percent. The
benchmark 10-year bond price was down 19 Canadian
cents, to yield 1.758.